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Money Laundering

Viewers of the award-winning television show "Breaking Bad" received a master class in money laundering over its five-season run. They watched as chemistry teacher Walter White became ever more proficient at manufacturing illegal drugs, but also watched as he struggled to handle all the money from his illicit operation.

At first, he could deposit it in the bank in "small" amounts (under $10,000), but the money just kept rolling in. He could buy money orders and deposit those in another account, again in small amounts. When his son set up a crowdfunding site to accept donations for Walter's cancer treatment, a friend exploited that to funnel Walter's drug money into his charity. Still, Walter finds himself sitting on so much cash that he runs out of places to hide it. Ultimately, he buys a car wash business, cleaning cars and dirty money at the same time.

Money laundering is a method of concealing the source of illegally obtained money. It is a crime that often accompanies organized crimewhite-collar crime, terrorist activities, and drug transactions.

This article discusses forty years of money laundering laws and the federal government's efforts to make organized crime unprofitable.

What Is Money Laundering?

It is important to understand that money laundering charges are secondary to a primary crime. That original crime is called a "predicate offense," and it is how the "dirty money" was acquired by the individual crook or criminal organization.

Through a series of steps — placement, layering, and integration — that money gains a new background story and is eventually no longer recognizable as connected with a crime.

  • Placement happens when the money enters into the legitimate financial system, whether in the U.S. or in an offshore bank account.
  • Layering is a series of financial transactions and/or fraudulent bookkeeping that makes it hard to follow an audit trail.
  • Integration sees the money come back to the criminal. This time, the money appears to be legitimate proceeds from a business or real estate investment.

Over time, federal criminal statutes refined the definition of the crime of money laundering to include:

  • Using the proceeds from certain crimes to engage in a financial transaction in order to:
    • Conceal the source or ownership of the money
    • Promote further criminal offenses
    • Evade income taxes
    • Evade monetary reporting requirements
  • Traveling in or through the U.S., or transporting illicit funds using the facilities of interstate commerce in order to:
    • Distribute the proceeds of criminal activities
    • Promote criminal activities
  • Using a money-transmitting business (like Western Union) to transmit funds to promote criminal activity.
  • Spending more than $10,000 of the proceeds of a certain illegal activity.

History of Federal Money Laundering Laws

Money laundering laws were initially enacted to combat the Mafia and organized crime. Criminal law statutes had two goals: to prevent criminals from disguising the origin of funds and to prevent the infiltration and control of legitimate businesses by organized crime. Over time, the focus of law enforcement agencies shifted to the "war on drugs" and, later, to anti-terrorist activity.

Bank Secrecy Act

The Bank Secrecy Act of 1970 (31 U.S.C. section 5311) is a law enforcement tool that can be used against banks and financial institutions. It requires financial institutions to:

  • Keep records of cash purchases of "negotiable instruments" like cashiers' checks
  • Report to the U.S. Department of Treasury cash transactions exceeding $10,000 (per day)
  • Develop a suspicious activity monitoring process
  • Report suspicious transactions that may be related to criminal activity or appear to be skirting the cash transaction reporting requirement
  • Screen for transactions from those on the Office of Foreign Assets Control Sanctions List
  • Adopt a customer identification program to meet requirements of the USA Patriot Act

The Office of the Comptroller of the Currency conducts regular anti-money laundering (AML) examinations of banking institutions. The BSA covers banks, credit card companies, insurance companies, and broker-dealers in securities.

Money Laundering Control Act

The Money Laundering Control Act (MLCA) of 1986 (18 U.S.C. section 1956) prohibits individuals or entities from conducting or attempting to conduct financial transactions using proceeds they know have come from criminal activities with the intent to:

  • Promote that criminal activity
  • Violate tax laws
  • Conceal the source, ownership, or control of that money
  • Avoid federal or state reporting requirements. This is often done by "smurfing" or "structuring" transactions. That is, by breaking a larger amount of money into smaller deposits or financial interactions. In this way, it avoids reaching the $10,000 threshold that requires reporting.

This Act also covers international money laundering schemes. It prohibits the transport or attempts to transport funds in or out of the U.S. for the purposes listed above.

The Act lists more than 250 state, federal, and international crimes. Many of these crimes relate to organized crime activities such as racketeering, drug trafficking, gambling, bribery, and extortion. For foreign crimes, the financial transaction needs to occur, at least in part, in the U.S. The list of federal offenses is long and includes federal healthcare offenses, federal environmental offenses, and more.

When proving a money laundering case, the government does not have to trace the money back to a particular criminal activity or need to prove that the accused knew the exact criminal activity that generated the funds. The prosecution only needs to prove that the accused knew the funds were gained from illicit activities.

If found guilty, defendants could face up to twenty years in prison. Money laundering comes with hefty fines, up to twice the value of the property involved, and any property purchased with funds from criminal endeavors can be confiscated.

Money Laundering Intent Requirement

The Money Laundering Control Act required that the illegal transaction be done with a certain intent, like tax evasion or concealment. This companion piece of legislation removed the necessity of spending with one of those intentions by making it illegal to knowingly engage or attempt to engage in any financial transaction of greater value than $10,000 using funds from one of the many listed criminal offenses.

Section 1957 carries a maximum penalty of 10 years in prison, fines of twice the amount of the transaction, and confiscation of property purchased with proceeds of crime.

The Travel Act

The Travel Act (18 U.S.C. section 1952) made it illegal to travel with the intent of distributing proceeds from a certain list of crimes, or to promote or carry out such crimes. Conviction for such misconduct carries a prison sentence of up to five years.

Anti-Drug Abuse Act

The federal government has also tried to crack down on the involvement of organized crime in drug trafficking and its use of legitimate businesses for money laundering.

The Anti-Drug Abuse Act of 1988 expanded the definition of "financial institution" to include car dealerships and real estate closers. These financial services businesses often handle large amounts of money, so they were attractive options for funneling large sums of money. These entities are now required to file reports on large currency transactions. They are also required to verify the identity of purchasers in amounts of over $3,000.

Annunzio-Wylie Anti-Money Laundering Act

The Annunzio-Wylie Anti-Money Laundering Act of 1992 strengthened penalties attached to the Bank Secrecy Act. It also required verification and recordkeeping for wire transfers and required suspicious activity reports.

Money Laundering Suppression Act

The Money Laundering Suppression Act of 1994 required banking agencies to enhance training and to review how they refer cases to law enforcement. It also folded "money service businesses" into anti-money laundering laws. These are businesses that cash checks, issue traveler's checks, money orders, or stored value cards, or exchange currency.

Money Laundering and Financial Crimes Strategy Act

The Money Laundering and Financial Crimes Strategy Act of 1998 required banks to develop training for bank examiners. It also required the Department of the Treasury to develop a national strategy and created task forces to concentrate law enforcement efforts in areas where money laundering was most prevalent.

Money Laundering and the Patriot Act

Following the terrorist attacks of September 11, 2001, Congress passed the USA Patriot Act. Title II of the Patriot Act — the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 — focuses almost entirely on money laundering. It criminalized the financing of terrorism.

The Patriot Act created potential criminal liability for financial institutions that are "willfully blind" to money laundering. The Patriot Act requires that all financial institutions check customer identities against lists of known or suspected terrorists. Banks are required to institute an enhanced due diligence procedure for foreign and private banking accounts. They are also prohibited from engaging in business with foreign shell banks.

The Patriot Act improved information-sharing between the government and financial institutions. Banks must now respond to regulatory requests for bank records within 120 hours.

This law can trigger an investigation of a suspect financial institution by the Federal Reserve and the Office of the Comptroller of Currency. If found guilty of illegal activity, a financial institution could face civil fines or criminal prosecution.

Financial Action Task Force

The Financial Action Task Force (FATF) is not a U.S. statute but an intergovernmental organization founded in 1989 to combat money laundering. In 2000, it turned its sights on the financing of terrorism. "Combating the Financing of Terrorism" (CFT) is a set of laws and regulations that govern funding and financial services. The FATF maintains a "blacklist" and a "greylist" of nations that fail to take adequate measures to fight money laundering and terrorist financing, or are themselves viewed as terrorist organizations.

Anti-Money Laundering Act of 2020

The Anti-Money Laundering Act of 2020 (AMLA 2020) expanded whistleblower rewards and protections. It established new Bank Secrecy Act (BSA) violations and enhanced penalties for repeat and egregious offenders.

The original Bank Secrecy Act provided that the Secretary of the Treasury "may" pay a reward, with a limit of $150,000. The AMLA now says the Secretary "shall" pay, and the payment ceiling is 30% of whatever the government collects.

The AMLA tried to close loopholes by requiring shell companies to register a "beneficial owner," someone who has more than 25% of the ownership interest. This information is only reported to the Financial Crimes Enforcement Network (FinCEN) and can only be shared with law enforcement, regulators, and financial institutions.

Charged With Money Laundering? Contact a Criminal Defense Lawyer

Financial crimes are complicated. Both prosecutors and defense attorneys require a certain level of expertise. Whether you were charged with the crime or are involved in a case, it helps to know the law. Get the help you need from an experienced criminal defense attorney near you.

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